1. Where should I pay income taxes. The company wants to pay income taxes for North Carolina and leave me responsible to handle California income taxes. I plan to divide my time between California and North Carolina. My permanent residency is in California and I own a house here. I don't want to owe taxes at the end of the year.
Your tax liability is based either on your residency or the source of income.
If you work in two places - North Carolina and California - the income from NC is taxable for this state and income from CA is taxable for CA.
If you have a residency in California - all your income regardless of its source will be taxable for that state. However because some of your income will be taxable for two states - CA and NC - you will be able to claim a credit on your CA tax return (home state) for taxes paid to NC (non resident state)
2. The company is going to paying my lodging costs in North Carolina and my airfares back and forth. The total reimbursement will be $18k. Do we need to count that as income? If yes, can I deduct those expenses from my tax liabilities at the end of the year?
However if these expenses are qualified business expenses depends on the length of your assignment - you your assignment i s less than a year - you tax hom e do not change and all travel expenses are deductible (including per diem).
But if your assignment is more than a year - it is considered a permanent and your tax home would be changed and travel expenses would not be deductible.
If the company implemented accountable reimbursement plan - and you ar e responsible to report back all travel expenses - these expenses ar e generally should not be included into your income. For not accountable plan - the company should include reimbursements into your wages - but you will be able to deduct business travel expenses.
Let me know if you need any help.